Telstra boss dreams of playing the full suite

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After his whirlwind weekend visit to Melbourne and media
blitzkrieg, an outline has emerged of Sol Trujillo's vision for
Telstra and motivation for accepting the CEO role. Whether he can
deliver it or, indeed, is allowed to deliver it are the critical
issues.

The most revealing aspects of Trujillo's cautious commentary on
Telstra and his plans lay in his reasons for taking on the role. At
Saturday's media and analysts' conference he referred to the
"unique opportunity here to establish services, products,
capabilities for our customers that are truly unique because of the
current circumstances here in Australia".

He used the word "unique" many times to describe Telstra and its
capabilities. He said he believed over the next few years Telstra
would do some things that no one else in the world was doing. On
the ABC's Inside Business he said "what intrigues me is the
current position of Telstra, its brand and the set of assets that
it has".

What distinguishes Telstra is its size, its financial strength
and the fact that it has the full suite of telecommunications
services. It is a full-service incumbent telco in a world where
there are few full-service, integrated telcos left. Trujillo made
reference to the break-up of AT&T and dismemberment of British
Telecom by regulation and management decisions.

"I believe that Telstra is in a position today where it still
has all the pieces of an equation, where in today's world, where
customers are looking for that seamlessness, that inter-operability
of services and capabilities, Telstra has that opportunity to
pursue," he said.

The other word he used a lot was "customers".

Trujillo's record, and language, says he is customer-driven and
that strategy and product and cost structures are driven by the
market, not dictated to customers by head office. Telstra has nine
different networks, supported by a raft of discrete technology
platforms. That complicates its ability to leverage its
capabilities and market power.

Asked about BT's 21st Century Network plans - the British group
plans a transition to a single all-internet protocol, all-fibre
network at massive cost - Trujillo said all major carriers were
looking at migrating to an IP-based network.

"The questions are always what's the practicality of it in terms
of the migration of your core infrastructure, your operating
support systems, and how you make sure that you have all the pieces
aligned as you migrate your business," he said. Clearly, however,
Telstra needed to move to an all-IP network, he said.

Having one platform to underpin its networks would produce
massive cost savings but, perhaps of even greater long-term
consequence, it would enable Telstra to bring its entire product
range to bear on individual customers. It could offer single bills,
better bundling and pricing of products and a single number for
both fixed and voice products, among other things. Telstra would be
able to innovate more and deliver new services faster.

Telstra's appeal to Trujillo is clearly its potential in an
environment where applications and services represent the value-add
and competitive difference.

The obstacles are cost and regulation.

Telstra's strategy is not much different to the one hinted at by
Trujillo. It has, however, been hastening slowly: partly because it
has wanted to milk its high-margin, fixed-line business for as long
as it could; partly because the capital costs of a rapid
acceleration in its IP-network plans would be massive and undermine
its near-term ability to satisfy its investors' demand for income;
and partly because the regulatory environment is uncertain.

Telstra knows that its regulator and competitors would be
opposed to anything that enabled it to leverage its dominance of
fixed-line telephony more effectively. For the past few years it
has been managed, through necessity, with a wary eye on the
politics of T3.

Trujillo showed some understanding of the sensitivities of T3
when he expressed careful support for operational separation in the
ABC interview.

"To create a competitive market place there are things you can
in fact do to create a robust, competitive environment where a
company that may own the network can be transparent in terms
of what it does - equivalent intervals, equivalent everything - and
that's part of what I think is doable," he said.

Trujillo made it clear, however, that he believed actual, or
structural, separation of Telstra's networks from its retail
businesses would be destructive to customer and shareholder
interests. Effective structural separation, under the guise of
operational separation, would undermine the very things that
convinced Trujillo to take the job.

The big advantage Trujillo would have over his predecessors, if
he were to be patient, is that post-T3 there will be regulatory
certainty, and the end of the politics generated by the
government's majority ownership. He will also have access to
capital and currency.

Given that he wants to have a strategy developed within months,
however, he appears prepared to forgo some of that advantage in
pursuit of urgency and some momentum in the lead-up to T3.

Trujillo's ability to deliver what customers want in the near
term will be limited by his board's willingness to sacrifice
dividend-paying capacity now for the promise of future growth, by
the imminence of T3 and the need to build domestic investor support
for that process, and by the reality that the regulator and
Telstra's competitors see T3 as their last and best chance to
shackle the group.

There is no certainty that the potential that drew him to
Telstra can be readily unlocked.